Thank you for your Explanatory Memorandum 5188/08 which
was considered by Sub-Committee A at their meeting on 5 February
2008. The Sub-Committee cleared the document from scrutiny but
asked me to write to you to request further information on some
detail of the European Court of Auditors (ECA) Report that is
attached to the Memorandum.

The Sub-Committee recall that the former Paymaster
General told them that the Government preferred administrative
solutions to the problem of Missing Trader Intra-Community Fraud
rather than changes to the VAT system, and in particular that
the Government supported information exchange between Member States
(Stopping the Carousel: Missing Trader Fraud in the EU
20th Report 2006-07 (HL 101), at Q 225). The Sub-Committee
noted that Table 2 on Page 20 of the ECA Report suggests
that one in three requests to the United Kingdom are not responded
to within 90 days. The table also identifies the United Kingdom
as only the 10th best Member State for responding to information
requests, and paragraph 28 of the ECA Report highlights some
very delayed responses to requests from 2003 and 2004. While
the Sub-Committee acknowledges that the UK receives more requests
than many Member States and is by no means the worst at replying
to them promptly, the Sub-Committee would welcome your comments
on these statistics. The Sub-Committee would also be grateful
if you were able to provide comparable figures to those in the
table, for 2007.

6 February 2008

Letter from Rt Hon Jane Kennedy MP to the Chairman

Thank you for your letter dated 6 February
2008 on behalf of Sub-Committee A in which you advised me
that the above document has been cleared from scrutiny, but that
you would welcome my comments on some statistical information
that appears in the Report.

You noted that, according to Table 2 on
Page 20 of the Report, the United Kingdom is only the 10th best
Member State for responding to requests for information from other
Member States and that paragraph 28 of the Report highlights
some very delayed responses from 2003 and 2004. You ask how
this performance accords with the Government's statements that
its preferred response to VAT fraud is to improve administrative
co-operation and information exchange arrangements rather than
change the EC VAT system.

You will see that in 2005 the UK's performance
in meeting the 90 day response target was considerably better.
The reason for the marked deterioration in performance in 2006 was
that HMRC then introduced delegated arrangements for managing
the exchange of information in respect of suspected VAT Missing
Trader Intra-Community (MTIC) transactions. While this resulted
in more direct and therefore faster exchanges in certain high
risk areas, many routine exchanges were not processed as rapidly
as they needed to be by staff who were new to this work. These
transitional difficulties have now been addressed, and the latest
provisional figures HMRC have are that they have responded to
69% within the 90 day deadline and that they expect this
figure to continue to rise in future years.

Turning to the very delayed responses mentioned
in paragraph 28 of the Report, as at 31 December 2007,
the number of requests outstanding for more than a year has fallen
significantly from 121 to 53, a drop of over 50%. I understand
that most of those that are still outstanding relate to businesses
that are subject to criminal investigation and that with these
cases there is difficulty in obtaining the required information.
However, the requesting Member State has been notified of the
position.

Although it is important that deadlines for
responding to information requests should be respected, the United
Kingdom has expressed concerns to the Commission about simply
using these annual statistics to measure a Member States' performance.
Clearly there are instances where speed is of the essence, but
the quality of the information that is exchanged is also important
and yet the current system totally relies on a crude deadline
and pays no regard to the results or outcomes from the information
that is exchanged. This issue has now been picked up and at an
EU level work will shortly begin to look at whether a more output
focused performance measurement system can be developed.

In conclusion, the Government remains of the
view that strengthened administrative co-operation and information
exchange is one of the most effective ways of fighting MTIC fraud.
That is why we are fully engaged and supportive of the discussions
that are currently underway in the Commission led Anti-Tax Fraud
Strategy (ATFS) Working Group.